3. CAS Dependency on Old Russian Pipeline
3.1. Turkmenistan
economically more advantageous than in the north of Russia where the overwhelming majority of Russian oil and gas fields are concentrated. Russia is striving to drag as large a part as possible of the hydrocarbon resources of Central Asia into its own fuel-energy balances in order to support internal consumption, without simultaneously lowering the volumes of its own hydrocarbon exports to external markets, first and foremost to Europe.91
3.1 Turkmenistan
During the Soviet era Turkmenistan provided significant quantities of gas to Russia and other republics. After the break-up of Soviet Union, Turkmenistan demanded payment for its gas from all former republics, including Russia, in hard currency at world prices. A series of disputes ensued over payment and non-delivery of gas between Turkmenistan and the former Soviet republics.92
Turkmenistan is Central Asia‘s biggest player with proven reserves of 3 trillion cubic meters, and production of 54.6 billion cubic meters (bcm), of which 38.6 bcm were exported in 2004, mostly to Russia through Soviet-era pipelines crossing Kazakhstan93. In Turkmenistan, Russia cut off Turkmen gas exports to Europe and tried to cut itself in on any future pipeline construction. Russia also apparently bought Turkmenistan's gas supply at low prices and resold it to Turkey at a 300 percent markup94.
91 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas sectors",2008, p.
6 ,http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 15 2010
92 Ibid.
93Dina Spechler and Spechler Martin, Central Asia. Trade, energy, and security in the Central Asian arena, Seattle: National Bureau of Asia Research, 2006, p 218.
94 Stephen Blank, The Strategic Studies Institute is the U.S. Army "Energy, Economics, and Security in Central Asia: Russia and Its Rivals", USA 1995 p.19 http://www.strategicstudiesinstitute.army.mil/pdffiles/pub119.pdf, access July 15 2011.
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of Companies are working in Turkmenistan. Project and investment activity of Russia and Russian companies in the oil and gas sectors of Turkmenistan is still extremely low. It encompasses only the gas transportation area and the volume of Russian investments at the end of 2007 was just in the region of 25 million U. S. dollars96. These investments were directed towards the supply from Russia of technical equipment for the gas sector of Turkmenistan, the renovation and modernization of gas pipelines, compression and distribution stations, etc. 97On the other hand, considering the significant hydrocarbon and, above all, the gas reserves of Turkmenistan, one can with great certainty assume that in the near future the investment activity of Russian companies will increase dramatically. Up to and including 2012, Gazprom alone plans to invest not less than 2 billion dollars in the gas sector of Turkmenistan. Furthermore, it is most likely that other Russian or joint companies can be expected to appear in Turkmenistan, in the first instance Lukoil and TNK–BP.
Turkmenistan‘s ability to exploit and export its natural gas is constrained by its geography and export options, primarily the routes and the capacity of those systems.
There exist two export routes for Turkmen gas: northwards to Russia and to Iran to the south. Of these two routes, the overwhelming majority of export infrastructure is focused towards Russia, a legacy of the Soviet Union‘s integrated pipeline network.
The export of natural gas generates up to 8598 percent of Turkmenistan‘s annual revenue. Turkmen gas is also essential for Russia. Exports from Turkmenistan provide energy to major portions of southern Russia, thus allowing Moscow to meet its income generating export demands in Eastern Europe. In addition, as the yields decrease in Russia‘s main gas fields and production sags due to a combination of aging
95 Jonathan P. Stern, ―The future Russian gas and Gazprom‖, U.K. 2005, p.72
96 Ibid.
97 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas sectors",2008, p.
6 ,http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 2010
98 Central Asia-Caucasus Institute Analyst, http://www.cacianalyst.org/?q=node/4378/print, access July 2011
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infrastructure and a lack of upstream investment, Turkmen gas allows Gazprom to meet mounting European energy demands.
Russia is the source of nearly half99 of Europe‘s total gas imports (varying by country), and according to the Economist - European demand is set to double in the next 30100 years. Gazprom‘s ability to meet those demands is a result of continued access to Turkmen gas. With gas the prime income earner, both the new Turkmen government and Russia are extremely dependent on the continued flow of gas exports.
For the Berdymukhammedov administration, access to export revenues will allow the patronage systems put in place by Niyazov to continue, thereby maintaining the status quo among the various competing interests at work in the country
In the immediate short term, we can expect there to be no changes in Turkmenistan‘s policy of gas exports. Rather, while the situation remains fluid in Ashgabat, and until presidential elections are held in early February, the interim Berdymukhammedov government will draw closer to Russia. This is simply the result of the fact that Moscow is best positioned to both influence and provide much needed stability to the new government. Moreover, Russia is the only viable export route for Turkmen gas, a fact well-known in both Moscow and Ashgabat.
One of Berdymukhammedov‘s first statements was that oil and gas exports would continue uninterrupted throughout Turkmenistan‘s transition, and thus far this appears to have occurred. Early indications suggest that the acting president and his backers in the security services of the ancient régime will likely win the February elections, thereby formalizing the transfer of power, and perpetuating the Niyazovist system. As a result, it is likely that a pro-Moscow gas export policy evolves in the short term, continuing to enrich the Turkmen nomenclature and advance Gazprom‘s profits and acquisitions.
99Heritage Foundation, http://www.heritage.org/research/reports/2007/11/europes-strategic-dependence-on-russian-energy , access July 15 2011.
100 Central Asia-Caucasus Institute Analyst, http://www.cacianalyst.org/?q=node/4378/print, access July 15 2011.
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Main priority for Russia is relationship with Turkmenistan is still continuing. In 2003 Russia obtained the option to buy all Turkmen gas for next 25 years. However prices were to be negotiated each year, which inevitably led to much hard bargaining.
―Moscow refused to give up when gas deliveries were stopped in the winter of 2004-2005, and showed considerable flexibility when seeking to secret Turkmenistan‘s support in the gas conflict with Ukraine in 2006‖ 101 . When new president Berdymukhammedov understood that Western proposals to cooperate are unreal, he decided to sign deal with Gazprom (this same agreement was signet also by Uzbekistan and Kazakhstan) in 2009 which granted an increase gas import from 50 to 90 bcm 102 and allowed to modernize The Khiva – Aleksandrov Gay pipeline and west and south of the country. Gas exports from Kazakhstan to Russia use the Central Asia-Center pipeline, which also carries gas from both Turkmenistan and Uzbekistan.
Russian gas trade with Kazakhstan, even during the Soviet period, never involved large volumes. However, the exchanges between the countries were logistically useful because of the location of Kazakh gas fields far from centers of population. For the same reason as in Turkmenistan case, the collapsed of the Union quickly saw the trade reduced to negligible levels. Kazakhstan is important to world energy markets because it has big oil and natural gas reserves. The existence of Soviet era pipeline system which links Russia and Kazakhstan has meant that ―Russia has had
101 Morten Anker, Baev Pavel, Brunstad Bjorn , Overland Indra and Torjesen Stin , The Caspian Sea Region Towards 2025, The Netherlands, Asmsterdam: EburonNederland, 2010, p.79.
102Ibid. p 77.
103 Central Intelligence Agency, The World Factbook https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html (estimate of January 1, 2009), access July 15 2010.